IslamicFinance.de

Turkey has been talking a lot about Arab purchases in the country. Most recently, the issue of Arab acquisitions has made headlines as part of a simmering controversy over a government plan to build an artificial waterway in Istanbul as an alternative to the Bosporus. Sheikha Moza bint Nasser, the mother of the Qatari emir, is among the buyers who have reportedly purchased 4.4 hectares of land in the area. While real estate sales to foreigners account for less than 3% of Turkey’s export revenues, Gulf investors hold only 9% of direct foreign investments in the country. In sum, any media buzz suggesting an Arab buying spree in Turkey is overblown.

Faisal Islamic Bank of Egypt (FIBE) will start appointing women to all of its branches for the first time since the bank was established in 1979. Egyptian member of parliament Inas Abdel Halim had submitted May 31 a briefing paper to then-Prime Minister Sherif Ismail about reports whereby the FIBE does not employ women. Abdel Halim stressed that the bank is violating Article 9 of the Egyptian Constitution, which stipulates that the state shall ensure equal opportunity for all citizens. She called on both the prime minister and the governor of the Central Bank to investigate the incident. According to Sahar el-Damaty, the first female vice president of Banque Misr, FIBE and its relationship with its founders in Saudi Arabia is the main reason behind the strict rules relating to the appointment of women. It seems the FIBE decision falls within a series of societal changes both in Egypt and Saudi Arabia aimed at granting women their full rights.

The Islamic Development Bank (IsDB) has established an investment fund aimed at curbing Palestinian poverty. The fund will help finance the Palestinian People’s Economic Empowerment Institution. The Palestinian government has given instructions to the Ministry of Social Development to prepare to launch the institution in mid-2019. The poor inside Palestine are the institution’s first target, and priority will be given to areas Israel has targeted with economic restrictions such as Gaza, the Jordan Valley, Jerusalem, the areas adjacent to the settlements and the West Bank wall. It will also work to empower women and the poor abroad, particularly those living in Palestinian refugee camps.

The Egyptian government plans to issue dollar-dominated and euro-dominated sukuk over the next fiscal year. Finance Minister Mohamed Maait made the announcement, expecting that the issuance of the Sharia-compliant bonds would attract huge demand. He added that the government would introduce amendments to the existing laws to enable the issuance. On April 11, the government approved a draft law to establish a sovereign fund aimed at making the best use of state assets with a capital of 5 billion Egyptian pounds (about $279 million). The Egypt Fund will benefit several infrastructure projects, create more job opportunities and reduce the budget deficit. The Egyptian government is also planning to float shares in state-owned companies to draw more local and foreign investors to the stock market.

Financial experts are warning that Iran’s banking sector is at risk of a collapse due to toxic assets. It is no secret that over the past decade all Iranian banks were negatively affected by sanctions, internal mismanagement and corruption. Another disturbing factor in the financial sector has been the presence of unlicensed financial institutions. Government interference has led to the accumulation of tens of billions of dollars of bad debts that will continue to put pressure on the balance sheets of Iranian banks for some time to come. Besides the high ratio of nonperforming loans, Iranian banks have a high portion of overvalued and illiquid assets on their balance sheets that need to be adjusted. Now several Iranian banks are following government instructions and have started to sell their noncore assets. The Central Bank of Iran (CBI) will have no choice but to push for bank mergers and also to impose and implement tough regulations on the country’s banks in order to prevent a deeper crisis.

Turkey's Nationalist Movement Party (MHP) is proposing to develop a national bitcoin called "Turkcoin". According to MHP deputy chair and former Industry Minister Ahmet Kenan Tanrikulu, missing out on blockchain would be a serious mistake. The politician stressed that cryptocurrencies were already in use in Turkey, despite the lack of a legal framework, so there is a clear need for regulation. Tanrikulu's report also proposes the creation of a state-controlled bitcoin bourse. Though the government maintains its stance toward bitcoin and other digital money, the idea for a national cryptocurrency seems to have better prospects. A Turkish company has already invested in a project to create a local cryptocurrency and is reportedly planning to make the money available soon.

The rising issuance of sukuk and Treasury bills in the past three years in Iran is seen as evidence of the success and allure of the Iranian debt market. Perhaps the most important factor contributing to the sales of bonds has been the lack of funds to private contractors and creditors. The Iranian government's budget for the public sector is allowed to issue a significant amount of debt securities. Although this helps state-run organizations sponsor infrastructure projects, it might bring about risk of default for future governments. An analysis of budget figures shows that the government is always forced to settle the past matured securities with the issuance of new ones. Government commitments are accumulated and rolled over to later years. The administration is due to pay its outstanding debt obligations, totaling $7 billion and can issue about $10 billion worth of sukuk.

In Iran, concerns are growing that banks may be facing the fate of credit and financial institutions (CFIs) that are on the verge of collapse. The Central Bank of Iran (CBI) is under rising pressure from the parliament to immediately regulate these nonbank credit institutions, as an increasing number of depositors protest delays. Now, there are fears that banks could be next. To avoid this scenario, pundits are suggesting that the CBI be granted more autonomy by the parliament so that it will take more serious disciplinary measures. The administration of President Hassan Rouhani has been trying to pass the bill in the parliament, but certain influential bodies have blocked the legislation. The huge government debt is putting excessive pressure on the banking system, but the Iranian public still trusts banks, even as many CFIs have collapsed.

On Feb. 26 the Iranian government got the parliament approval to sell a total of 10 trillion rials ($308 million) worth of excess properties owned by its ministries. The raised money is expected to help shore up the troubled Post Bank of Iran and the Cooperative Development Bank. According to economic newspaper Donya-e Eqtesad, toxic assets account for 40-45% of total banking assets in the country. Nearly 15% of these assets consist of immovable assets such as land and buildings. The rest consists of nonperforming loans and government debt. The sale of at least 33% of the surplus assets could have taken place in the fiscal year running to March 20, but banks eventually decided to find a legal way to postpone the sale process. Real estate expert Farhad Beizaei accused banks of wasting time so that they can sell properties at higher prices next year.

The Central Bank of Iran (CBI) and CEOs of commercial banks reached an agreement that the institutions should not offer a deposit rate of more than 22%. The CBI has focused on restricting the monetary base and raising profit rates on participatory loans to curb inflation over the past 18 months. The policy has been a successful attempt as inflation dropped from 34.7% in the year up to March 20, 2013, to 15.8% in the year up to Feb. 20, 2015. However, Abbas Kamrei, a board member of Bank Melli, the largest state-run commercial bank, criticized CBI's interest rate policy as incorrect. He urged CBI officials to take into account the public expectations from banks.

Turkey’s government has moved to expand Islamic banking by inviting public banks into the sector. Earlier this month, the largest state-run bank, Ziraat, received approval to establish an Islamic unit with $300 million in capital. Ziraat has nine months to establish the new bank. But a key question remains unanswered: Where will the capital come from? If Ziraat’s interest-based earnings are considered illicit, how is it going to establish the capital of an interest-free bank? To resolve the conundrum, the Treasury is reportedly planning to provide the required capital although it also operates on the basis of interest. Meanwhile, the government has already submitted a bill to parliament to clear legal hurdles in Vakifbank and Halkbank’s path to Islamic banking.

The Hamas government relies heavily on the taxes and tariffs imposed on goods flowing through the crossings with Israel and the tunnels with Egypt to cover monthly costs and payments for governance. The Hamas government taxes the majority of the Egyptian products to raise revenue, while the taxes on the Israeli supplies, including basic goods, go to the government in Ramallah. Now, the supply of goods smuggled from Egypt through underground tunnels has nearly come to a halt, severely exacerbating the economic hardship already being suffered by the Palestinian residents of the Gaza Strip. Tax receipts from goods entering through the tunnels account for about 40% of the government's general revenue. Thus, as a result of the tunnel closures, the government has been forced to borrow from the National Islamic Bank in Gaza to pay the salaries of local staff.

In Tunisia, the development of Islamic banking and Islamic insurance primarily depends on the introduction of a law that is more in line with market needs and expectations. Still, Mahfoudh Barouni, an expert in banking and finance, believes that the imperfections of the existing law have not so far hindered the smooth development of Islamic finance. In the past, there were already laws governing the sector that had been drafted according to market needs, but this legislation did not actually govern the Islamic finance sector. Currently, there are texts that legislate Islamic finance and grant all Tunisians the freedom to choose between Western and Islamic finance. Speaking on the topic of Islamic insurance, the CEO of Zitouna Takaful, Makram Ben Sassi, recalled that this business has existed in Tunisia for 30 years. Yet, the real problem is that there is a lack of awareness and responsibility rooted in the mentality of Tunisians in general.

Private banks in Iraq have almost utterly ceased to fulfill their traditional functions, e.g. giving out loans, lending credit and issuing letters of credit. The reason is the risk of default. That is why Iraqi private banks resort to participation in the currency auction regularly held by the Iraqi Central Bank instead. In order not to face defaults on payments, they demand exaggerated guarantees for the granting of any loans to local investors. Banking experts say that the value of some loans is not able to cover more than 40% of the guarantees which are demanded by the banks.